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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 1996
COMMISSION FILE NUMBER 0-21176
WALL DATA INCORPORATED
(Exact name of registrant as specified in its charter)
WASHINGTON 91-1189299
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11332 N.E. 122ND WAY, KIRKLAND, WASHINGTON 98034
(Address of principal executive offices) (Zip Code)
(206) 814-9255
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such report), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes of
common stocks, as of the latest practicable date.
OUTSTANDING AT
CLASS APRIL 30, 1996
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COMMON STOCK 9,019,039
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WALL DATA INCORPORATED
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1996
INDEX
PART I. FINANCIAL INFORMATION PAGE
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Item 1. Financial Statements
Consolidated Income Statements for
the three months ended March 31, 1996 and 1995 3
Consolidated Balance Sheets
as of March 31, 1996 and December 31, 1995 4
Consolidated Statements of Cash Flows
for the three months ended March 31, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WALL DATA INCORPORATED
CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED
MARCH 31,
1996 1995
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Net revenues $29,856 $22,100
Cost of revenues 6,728 4,587
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Gross margin 23,128 17,513
Operating expenses:
Product development 5,806 4,018
Sales and marketing 13,521 11,760
General and administrative 3,317 2,321
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Total operating expenses 22,644 18,099
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Operating income (loss) 484 (586)
Other income, net 340 620
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Income before income taxes 824 34
Provision for income taxes 313 13
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Net income $ 511 $ 21
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Net income per share $ 0.05 $ 0.00
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Weighted average common and common
equivalent shares outstanding 9,583 10,314
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See accompanying notes.
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WALL DATA INCORPORATED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
MARCH 31, DECEMBER 31,
1996 1995
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ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 56,960 $ 51,969
Accounts receivable 23,275 27,597
Inventories 991 900
Deferred income taxes 2,984 2,843
Other current assets 2,580 3,048
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Total current assets 86,790 86,357
Fixed assets, net 13,305 13,893
Deferred income taxes 1,941 2,017
Other assets 7,767 7,072
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$109,803 $109,339
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,459 $ 6,038
Accrued expenses 8,340 9,882
Income taxes payable 3,950 1,913
Deferred revenues 6,947 7,804
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Total current liabilities 25,696 25,637
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Shareholders' equity:
Preferred stock -- --
Common stock 52,302 52,295
Retained earnings 32,021 31,510
Cumulative translation adjustment (216) (103)
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Total shareholders' equity 84,107 83,702
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$109,803 $109,339
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See accompanying notes.
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WALL DATA INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
1996 1995
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OPERATING ACTIVITIES
Net income $ 511 $ 21
Adjustments to reconcile net income to net cash
provided by operations:
Deferred income taxes (65) 274
Depreciation and amortization 2,155 1,418
Other, net (130) 125
Decrease (increase) in operating assets:
Accounts receivable 4,452 9,144
Inventories (91) (21)
Other current assets 431 (241)
Increase (decrease) in operating liabilities:
Accounts payable 421 (2,308)
Accrued expenses (1,542) (3,373)
Income taxes payable 2,037 (3,674)
Deferred revenues (857) 1,998
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Net cash provided by operating activities 7,322 3,363
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INVESTING ACTIVITIES
Purchases of fixed assets (801) (1,323)
Other assets (1,424) (1,244)
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Net cash used by investing activities (2,225) (2,567)
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FINANCING ACTIVITIES
Proceeds from issuances under stock plans 7 884
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Net cash provided by financing activities 7 884
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Net increase in cash and cash equivalents 5,104 1,680
Effect of exchange rate changes on cash (113) (120)
Beginning cash and cash equivalents 51,969 26,927
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Ending cash and cash equivalents $56,960 $28,487
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See accompanying notes.
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WALL DATA INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1996
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying consolidated balance sheets
and related consolidated statements of income and cash flows include all
adjustments, consisting only of normal and recurring items, necessary for
their fair presentation. The results for the three months ended March 31,
1996 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1996. These financial statements and related
notes should be read in conjunction with the Company's audited consolidated
financial statements for the year ended December 31, 1995 which are
included in the Company's Annual Report to Shareholders.
2. NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1996, the Company adopted Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of," (SFAS 121). SFAS 121 requires
impairment losses to be recorded on certain long-lived assets used in
operations or expected to be disposed of. The adoption of SFAS 121 had no
effect on the Company's financial statements for the three months ended
March 31, 1996. The Company also adopted, effective January 1, 1996,
certain accounting and disclosure provisions under Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). As
permitted under SFAS 123, the Company has elected to continue to account
for stock option grants to employees in accordance with APB Opinion No. 25,
"Accounting for Stock Issued to Employees," and accordingly, recognizes no
compensation expense for employee stock options when the exercise price is
equal to the fair market value at the date of grant. The adoption of SFAS
123 had no effect on the Company's financial statements for the three
months ended March 31, 1996.
3. LITIGATION
In April 1995, four individuals who allegedly had purchased Wall Data
common stock filed proposed shareholders' class action lawsuits against
Wall Data and certain of the Company's officers and/or directors in the
U.S. District Court, Western District of Washington. A consolidated
complaint amending the four actions was filed by one of the individuals in
June 1995. The complaint alleged misrepresentations and omissions with
respect to the Company's business, including its actual and expected
financial results and success of and demand for the Company's products, in
violation of federal securities laws and state laws, during the period from
January 26, 1995 through April 5, 1995. On September 13, 1995, the Court
granted the Company's motion to dismiss the complaint, with leave to amend
the complaint. The Court also dismissed all claims against one of the
Company's directors with prejudice. On January 12, 1996, the plaintiffs
filed a second amended complaint, containing the same alleged violations of
law and class period as the previous complaint. The complaint seeks
unspecified damages. The Company has filed a motion to dismiss this second
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complaint. The Company believes the allegations are without merit and
intends to defend the action vigorously.
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WALL DATA INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
When used in this report and elsewhere by management from time to time, the
words "believes," "anticipates" and "expects" and similar expressions are
intended to identify forward-looking statements. Certain important factors could
cause the Company's actual results to differ materially from those expressed in
the Company's forward-looking statements. These factors are detailed in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995
and include, but are not limited to, fluctuations in quarterly performance,
competitive products and pricing, dependence on a single product line,
dependence on host computing, dependence on Microsoft Windows, risks associated
with new products and technological change, increasing reliance on resellers and
distributors, uncertainties regarding international operations, dependence on
key personnel, ability to manage growth and risks associated with intellectual
property and proprietary rights. Readers are cautioned not to place undue
reliance on the forward-looking statements, which speak only as of the date
made. The Company undertakes no obligation to publicly release the results of
any revision to the forward-looking statements that may be made to reflect
subsequent events or circumstances or to reflect the occurrence of unanticipated
events.
RESULTS OF OPERATIONS
Net revenues increased 35% in the first quarter of 1996 to $29.9 million from
$22.1 million in the first quarter of 1995. Sales of the Windows versions of
RUMBA(R) Mainframe, the Windows versions of RUMBA OFFICE, OEM products, RUMBA
for the AS/400 and revenues from ONESTEP customer support contracts accounted
for most of the net revenues in the first quarter of 1996. Most of the increase
in net revenues in the first quarter compared to the first quarter of 1995
resulted from increased sales of RUMBA for Database Access, ONESTEP customer
support contracts, OEM products and report writer products from Concentric Data
Systems ("Concentric") which was acquired in April 1995. Sales outside North
America represented 29% of net revenues in the first quarter of 1996 compared to
33% of net revenues in the first quarter of 1995. Foreign currency exchange rate
changes did not have a significant effect on net revenues in the first quarter.
Revenue from indirect and OEM distribution channels equaled 71% of net revenues
in the first quarter of 1996 compared to 77% of net revenues in the first
quarter of 1995.
In March 1996, the Company released commercial versions of a number of RUMBA
software products, incorporating the ActiveX component architecture, for Windows
95 and Windows NT. Approximately 10% of net revenues in the first quarter of
1996 related to products containing the new ActiveX technology. The Company
began shipping commercial versions of SALSA for the Desktop in February 1996;
net revenues in the quarter were not significant.
Cost of revenues consists of software publishing costs, which include labor,
product media, packaging and documentation costs, and publishing engineering,
technical support and product quality assurance costs, royalties and licensing
costs, and provisions for obsolete inventory, doubtful accounts and reseller
rebates. The Company's gross margin as a percentage of net revenues decreased to
77.5% in the first quarter of 1996 from 79.2% in the first quarter of 1995
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due primarily to increases in royalties and amortization of prepaid licenses
resulting from the increase use of third-party technology in the Company's
products.
Product development expenses increased 44% to $5.8 million, or 19% of net
revenues, in the first quarter of 1996, from $4.0 million, or 18% of net
revenues, in the first quarter of 1995. The $1.8 million increase resulted
primarily from higher staffing levels, increased occupancy costs and the
acquisition of Concentric.
Sales and marketing expenses increased 15% to $13.5 million, or 45% of net
revenues, in the first quarter of 1996 from $11.8 million, or 53% of net
revenues, in the first quarter of 1995. The $1.7 million increase was due
primarily to higher staffing levels, increased sales commissions arising from
increased net revenues, and the acquisition of Concentric.
General and administrative expenses increased 43% to $3.3 million, or 11% of net
revenues, in the first quarter of 1996, from $2.3 million, or 11% of net
revenues, in the first quarter of 1995. The $1.0 million increase resulted
primarily from higher staffing levels, higher legal fees principally due to the
shareholders' class action lawsuit (see Note 3 of Notes to Consolidated
Financial Statements), higher depreciation charges and the acquisition of
Concentric.
Other income, net of other expenses, decreased 45% to $0.3 million in the first
quarter of 1996 from $0.6 million in the first quarter of 1995. The $0.3 million
decrease primarily resulted from lower investment income earned, due principally
to lower interest rates, and from changes in the amount of foreign currency
transaction gains or losses; foreign currency transactions resulted in net
exchange losses of approximately $100,000 in the first quarter of 1996 compared
to net exchange gains of approximately $100,000 in the first quarter of 1995. To
date, the Company has not engaged in currency hedging transactions against sales
denominated in currencies other than U.S. dollars.
The effective income tax rate was 38% in the first quarter of both 1996 and
1995.
Net income equaled $511,000, or 2% of net revenues, in the first quarter of 1996
compared to $21,000 in the first quarter of 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents and short-term investments totaled $57.0
million, or 52% of total assets, at March 31, 1996, compared to $52.0 million,
or 47% of total assets, at December 31, 1995.
Net cash provided by operating activities totaled $7.3 million in the first
quarter of 1996 compared to $3.4 million in the first quarter of 1995.
Expenditures for property and equipment totaled $0.8 million in the first
quarter of 1996 compared to $1.3 million in the first quarter of 1995.
Expenditures for prepaid software technology and other long-term assets totaled
$1.4 million in the first quarter of 1996 compared to $1.2 million in the first
quarter of 1995. The Company will, from time to time consider the acquisition of
additional third party technology through license agreements, acquisitions or
investments in other businesses.
Stockholders' equity increased to $84.1 million at March 31, 1996, from $83.7
million at December 31, 1995. The change primarily resulted from net income in
the first quarter.
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Management believes that existing cash and cash equivalents together with funds
from operations will be sufficient to finance the Company's operations over the
near term.
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WALL DATA INCORPORATED
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In April 1995, four individuals who allegedly had purchased Wall Data
common stock filed proposed shareholders' class action lawsuits against
Wall Data and certain of the Company's officers and/or directors in the
U.S. District Court, Western District of Washington. A consolidated
complaint amending the four actions was filed by one of the individuals
in June 1995. The complaint alleged misrepresentations and omissions
with respect to the Company's business, including its actual and
expected financial results and success of and demand for the Company's
products, in violation of federal securities laws and state laws,
during the period from January 26, 1995 through April 5, 1995. On
September 13, 1995, the Court granted the Company's motion to dismiss
the complaint, with leave to amend the complaint. The Court also
dismissed all claims against one of the Company's directors with
prejudice. On January 12, 1996, the plaintiffs filed a second amended
complaint, containing the same alleged violations of law and class
period as the previous complaint. The complaint seeks unspecified
damages. The Company has filed a motion to dismiss this second
complaint. The Company believes the allegations are without merit and
intends to defend the action vigorously.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(11) Computation of Earnings Per Share
(27) Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
quarter ended March 31, 1996.
ITEMS 2, 3, 4 AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Wall Data Incorporated
Date: May 14, 1996 By: KERRY D. PALMER
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Kerry D. Palmer, Acting Chief
Financial Officer, Corporate
Controller and Assistant Secretary
(Duly Authorized Officer and Chief
Financial and Accounting
Officer)
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WALL DATA INCORPORATED
INDEX TO EXHIBITS
Exhibit Description Page
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(11) Computation of Earnings Per Share 14
(27) Financial Data Schedule 15
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